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Looking for a Home: Sometimes, life stress comes not from work, but rather the home. For me, a recent stressor over the past several months has come from looking for a home to purchase. I thought it would be beneficial for us to discuss this subject, because it’s something most of us will do at some point or another. It’s also helpful to learn from others’ mistakes, of which I’ve made more than my share. Hopefully, my story will be beneficial to some in the future. Before I start, let me state on the outset that I’m not a financier or loan expert, so for those of you interested in a home purchase, be sure to investigate and speak to the appropriate experts.
Hindsight As with all new experiences, there’s a certain learning curve. Unfortunately, my learning curve was not steep enough at the outset. It has recently become painfully so. During residency training and early practice, my wife and I rented various apartments and houses. This turned out to be a good idea in hindsight, because it was much easier for us to relocate when I changed jobs. When I think about the terrible housing market in Michigan where I trained, I breathe a sigh of relief; there’s no way I would have been able to sell a home.
A “Buyer’s” Market After moving to Southern California for my new position with the Western University College of Podiatric Medicine, I felt like I’d found my professional home. As such, my wife and I decided it was time to settle down and purchase a house. We knew when we moved that the home prices in Southern California were higher than much of the country. However, like the rest of the country, the Los Angeles area was hit with dropping home prices, and we thought we’d be walking into a buyer’s market. As it turned out, though, we learned our first lesson in home buying: a buyer’s market is more complex than it sounds. Knowing the Market Because the economy has been so bad and so many people owe more on their homes than those homes are worth, very few people can afford to sell. In simple economic terms, this leads to a low supply of homes within our price range. Here’s lesson number two: know your market. Expectations As we looked at house after house, we realized we were going to have trouble finding a home. You see, our expectations were quite different from what we could afford in Southern California. Lesson number three: have clear expectations and match those expectations to what you can afford. Several times, we found houses we liked, but those houses were priced higher than what we were willing to pay. Thinking, “This is a buyer’s market, so we should have no trouble negotiating a good deal on a nice house,” we attempted to negotiate. We experienced several rude awakenings when we realized people were unwilling to bargain. So much for that “buyer’s market.” Hidden Costs Finally, the day came where we found a house and were very close to closing the deal when we learned the hardest lesson of all: hidden costs abound. So, what costs are actually involved in buying a house? Well, of course, it’s complicated. First, what kind of mortgage do you qualify for? Do you want a standard mortgage? You’ll need 20% of the home price (in my location where we were looking for a $450,000 price tag that calculates to $90,000). The other option is the FHA loan program. In this case you only have to put down 3.5% of the purchase price. The downside (yes, there’s always a downside) is there’s a 1% upfront fee (rolled into the mortgage) and mortgage insurance (called PMI or MI – more like myocardial infarction than mortgage insurance!) which would have cost us an extra $550 per month. This insurance has to be paid for 10 years or you refinance the loan with 20% equity in the house. Oh yeah, don’t forget home owner’s insurance and taxes. We found out, much to our chagrin, that we’d have a monthly mortgage payment of $3400. When I consider all my other bills (like my mountain of financial aid debt), I would have been house poor. During this time, we looked into Bank of America’s doctor’s loan program. This is a relatively new program that was reintroduced from an older program that originally only catered to MDs. Podiatric physicians now qualify for this loan, and it requires only 5% down and rolls in the mortgage insurance (with a slightly higher interest rate). Sounded good, except for one hitch: if you buy a home in a "declining" market — which of course was exactly the market we were looking at — you have to put down 10%. Oh well, back to the FHA... Since a $450,000 house was clearly beyond our comfortable budget, we decided to readjust those expectations again and have now dropped our price range significantly. Of course, all those prior issues — like the lack of housing inventory — still apply. As it stands at the time of my writing this issue, we still haven’t found a home. There’s a teeny tiny itty-bitty little pessimistic part of me that thinks by the time we find a house, the market will turn around. I can’t even imagine what a seller’s market looks like. Keep writing in with your thoughts and comments. Better yet, post them in our eTalk forum. Best wishes.
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